What literary device is used in "The Secret Life of Walter Mitty"?
Conflict, parody or stream of conciousness.

Well, from your list you could argue that there are actually two literary devices that are used. Certainly we can discount stream of consciousness, which seeks to indicate the range of thoughts that a person has as naturally as possible. This story is not told using this narrative device. However, arguably there is definitely conflict in Walter Mitty in two senses. Firstly there is the conflict that Mitty has with his wife, who is overbearing...

Well, from your list you could argue that there are actually two literary devices that are used. Certainly we can discount stream of consciousness, which seeks to indicate the range of thoughts that a person has as naturally as possible. This story is not told using this narrative device. However, arguably there is definitely conflict in Walter Mitty in two senses. Firstly there is the conflict that Mitty has with his wife, who is overbearing and horrid, which forces him to retreat to his world of daydreams, and secondly there is conflict in the way that Mitty battles between his daydreams and the real world, with the real world always imposing on his daydreams, reminding him of how insignificant he is and how mundane his life is.

However, although we cannot deny the existence of conflict, it seems that the literary device that we see used far more is that of parody, which is a work that ridicules another genre of literature by imitating various aspects of its style and content. Note the way that the element of parody is clear from the very beginning of the story:

"We're going through!" The commander's voice was like thin ice breaking. He wore his full-dress uniform, with the heavily braided white cap pulled down rakishly over one cold grey eye.

Note the way that an officer would never normally wear a dress uniform whilst in combat, and if we continue to read the first daydream of Walter Mitty we see that the hydroplane is said to have eight engines, whereas a real hydroplane is a small, lightweight motorboat with hydrofoils, and would never have eight engines or a turret. We see that parody is used to exaggerate the fantasy life of Mitty and the unreal, larger-than-life adventures that he seeks in his daydreams. Of course, the element of parody on serves to heighten the contrast even more between his real life and his fantasy life.